Did Mr Hall know?
88 I then come to the issue whether it can be said, beyond reasonable doubt, that Mr Hall knew that the information provided by the auditors was not generally available, and was price sensitive, such that it was his duty not to trade in Clifford shares. I have no doubt that he did know, and recognised that he should not trade. I have reached that view for a number of reasons:
· First, Mr Hall is a mature and intelligent man. He was almost 60 years old when this offence was committed. He had the advantage of a tertiary education. He qualified as a Chemical Engineer in 1966. He received an Associate Diploma of Management in 1970. He spent much of his life in business as a company director. He worked in a number of industries. In 1998, he was the director of a substantial public company and a director of many other companies. He was, until September 1998, the chairman of the audit committee of Clifford.
· Secondly, Mr Hall had some experience in trading shares on the Stock Exchange. Mr McCormack from Merrill Lynch said that he had dealt with Mr Hall since April 1998, mainly in the context of Clifford shares. He gave precise instructions as to volume and price. Mr McCormack said he was aware that Mr Hall had access to current share market information. The other broker, Mr Torgersen, said much the same thing. Mr Hall had shown him a computer screen on his desk which provided current share market information. Mr Hall, in response to this evidence, submitted, and I accept, that there was no evidence of share dealing generally with a view to profit.
· Thirdly, Mr Hall and Mr Loiterton were the driving force behind Clifford Corporation. I do not doubt that Mr Loiterton was the dominant force. However, Mr Hall played a significant role. Both, through Leisuremark and Blenheim Holdings, were substantial shareholders in Clifford. The course of events during 1998 demonstrated, I believe, a keen awareness on the part of the Board, including Mr Hall, of the power of information to affect share price. The share price had been falling since February 1998. An attempt was made, by the announcement on 2 June 1998, to arrest that decline, first, in foreshadowing a $10 million profit made up of fees yet to be received, and, secondly, by what was termed "the Road Show". The Road Show announced to the stockbroking fraternity, and through them to the market, a three year plan where $40 million in profit were the expected earnings. It is not to the point that these efforts were ultimately unsuccessful and that the share price continued to decline. There is little doubt that the directors, including Mr Hall, were seeking to arrest that decline by providing the market with good news.
· Fourthly, the events which followed underlined the importance of information to the market, and the Board's appreciation of the need to provide positive information. On 11 September 1998, the Board faced the inevitable need to revise its profit forecast, after the IBYO agreement had been postponed. Having seen the decline in the share price that followed, it again endeavoured to respond with positive news. On 16 September 1998, the day of the first margin call, the Board made an announcement foreshadowing a dividend.
· Fifthly, on 16 September 1998, Citibank made its first margin call. Mr Hall knew of the proposed dividend announcement. He asked that the call be delayed to enable him to seek advice on insider trading. The advice confirmed that he must not trade. Citibank, in the circumstances, agreed to allow an additional day. I believe Mr Hall well understood the prohibition against insider trading.
· Sixthly, within a short time, there were two other illustrations of Mr Hall's appreciation of the importance of information to the market. When he spoke to Ms Armstrong of Citibank on 13 October 1998, he sought the postponement of the sale of Clifford shares until 23 October 1998, knowing that the settlement with IBYO was scheduled for 21 October 1998. The sales would therefore take place once the market had received the positive news of that settlement. On 29 October 1998, when Mr Hall saw Ms Armstrong and Mr Basten of Citibank, he said that he had confidential information. Clifford would announce a new director. He expected the announcement would have "a positive impact" on the share price.
· Seventhly, as the Crown pointed out in its submissions, it is difficult to imagine more price sensitive information than that which the auditors provided on 22 October 1998. The letter was marked "private and confidential". It was the culmination of work by the auditors over many months. It expressed an opinion, not yet final, that there had been a potential overstatement of profits of $15 million. The auditors were concerned that the company was trading whilst insolvent.
89 The letter was a "bombshell", as Mr Hall and other Board Members would have recognised. It had implications, not only for the share price, but in respect of the attempts by Clifford to replace its financier. I have no doubt that Mr Hall well appreciated the need to keep it secret and the effect it would have, were it to become public. He well understood that the share price would plummet and the Corporation may well collapse were the information to get out. Further, the auditors in the letter reminded directors, including Mr Hall, of the importance of price sensitive information. As mentioned, the letter included these words:
"We also remind the Directors of their responsibilities under ASX Rule 3.1 which requires that once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entities securities, the entity must immediately tell the ASX that information."
90 It was said by Mr Hall, in submissions, that he and other directors did not accept the auditor's opinion. Certainly there are expletives on Mr Hall's copy which suggest that, in respect of some items, he emphatically differed from the auditors. But again, that is not the point. Until these differences were resolved and the opinion was revised or withdrawn, the information was explosive, and Mr Hall knew it. Knowing that, he nonetheless traded in Clifford shares.
91 Counsel for Mr Hall said that there was nothing covert in Mr Hall's share dealings and that told strongly against any suggestion that he knowingly breached the law. However, I am not persuaded. Whilst there are cases involving insider trading, where the offender has endeavoured to disguise his dealings, they usually involve the purchase of shares where an anonymous vehicle is used to make the purchase, or the purchase is made through a third party. Here, however, the shares were being sold. They were held by Leisuremark or Blenheim Holdings. It was necessary that someone with authority give the brokers instructions. It would not have been obvious to the brokers that an offence was being committed. When the instructions were given, they did not know the information which had been disclosed to Mr Hall, since it was not generally available. There was no reason for covert action. Had the company somehow survived, the share dealing by Mr Hall may never have become known. The dealings became known because of the collapse.
92 This is not, therefore, a case of negligence, where Mr Hall overlooked his duty. Mr Hall, knowing that he had inside information, that is, information that was not generally available, and knowing that information was price sensitive, deliberately traded shares, when he well knew he should not do so.